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Time to rebalancebut remember uncertainty can be positive as well as negative

The financial and political worlds

At home we have now finished the Christmas cake and the financial and political worlds are finally back in full flow. The markets have come off their peak following the inauguration of The Donald and Sterling strengthened a little after the Teresa May speech.

When I read the news, I look for changes in the headlines and the frequency that subjects appear. Today, for the first time, I came across a report suggesting that the pound may reach the bottom of its cycle when article 50 is triggered and will recover sharply towards the end of 2017. I am not saying that this will happen, let's face it, we know that economists are only right some of the time. However, if this is the case it will be good news if you are planning a holiday abroad, but less so for the index of leading UK exporters.

If we look at the two charts we can see that when Sterling fell after the referendum, that the stock market rose by 20% to a new high, therefore we should at least give some credence that the reverse is also possible.

GBP v USD, Source Thompson Reuters EIKON

When you originally built your portfolio, you would hopefully have completed an assessment to create a personalised investment profile to help you reach your objective within your own volatility parameters. This might have suggested that you should have half your portfolio in defensive assets and half in growth based investments. Most organisations would call this a balanced portfolio. UK stocks may have risen by 20% since the summer and if you are holding US assets you will find that their values have also increased as a result of the fall in the Sterling price.

This might therefore be a good time to take some profits and rebalance your portfolio back to your original parameters. I would advise against selling out of equity investments altogether, we have seen over the summer of 2016, the markets sometimes interpret economic events differently than the media economists. A low pound could see the equity markets rise further as overseas investors may consider it a good time to buy UK companies.

We offer free initial consultations on how we can help you manage your portfolio during this period of political uncertainty.

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